April: Will crowd-funding disrupt the venture model?
Given venture investors are funding the current and future “disruptors” in just about every other industry, it’s only fair that we face some disruption every once and a while. That being said, I’d argue that the past 10 years (2001-2011) were the most disruptive the venture world has ever seen. The combination of poor returns post-tech bubble, the development of Super Angels, the ubiquity of low cost infrastructure (e.g. Amazon Web Services), and the emergence of accelerator programs such as Y-Combinator, TechStars and Excelerate Labs have all materially impacted the traditional venture model. (New World has certainly changed a lot since our launch in 1996.) Part of the impact has been a downsizing of the industry - according to the NVCA, there were 1,022 active venture funds in 2000 vs. only 462 today. The firms that have survived have, generally speaking, generated superior returns by being disciplined when investing, and by providing significant value post-investment. The value provided post-investment is particularly important, and provides quite a bit of insulation for venture investors with respect to crowdfunding.
While crowdfunding platforms such as Kickstarter, Indiegogo and Crowdfunder provide new ways to fund new products and/or companies, funding is only one piece of the puzzle for growing companies. The venture industry exists to help companies attacking big problems in big markets with capital AND access: access to game-changing employees, to independent board members, to channel partners, to customers, to relevant portfolio companies, to other CEOs that have worked through similar challenges, etc. For those companies just looking for cash, crowdfunding platforms could provide a great alternative, especially once the market matures a bit, and stronger platforms emerge from the noise. As a result, venture and angel investors that provide only capital will certainly continue to feel the pain. Angels and venture firms that can add real value post-investment should still play a valuable role regardless of whether the initial funding came from crowdfunding platforms, Angels, Accelerator Programs or paying customers.
Each week the team at New World Ventures answers your questions about startups, raising capital, technology, and entrepreneurship. Submit your own question and see more answers here.
